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US Steps Up Influence in Nepal in Competition with China

U.S. Embassy Kathmandu Courtesy Facebook Page

US Under-Secretary of State for Political Affairs Victoria Nuland’s recent visit to Nepal, India, and Sri Lanka was a welcome, yet highly charged affair. For Nepal, while new development prospects are welcome, the pressure to choose sides between China and the US is unwanted. The US State Department’s Victoria Nuland visited Nepal recently, coming less than two months after the forming of government in Kathmandu. The visit is the first and highest level from the current Biden administration. It is widely seen as an attempt by the US government to cultivate relations with the new Pushpa Kamal Dahla-led government and lay the foundations for the implementation of new projects under the Millennium Challenge Corporation (MCC) compact. The State Department identified the multi-day visit as a top strategic concern as the administration seeks to boost its involvement in the Indo-Pacific. Under this framework, which envisions a free, open, connected, and resilient Indo-Pacific region, all small South Asian countries are included. Nuland, in meeting with Nepal’s prime minister and key leaders of ruling and opposition parties, said Nepal was free and able to have an economic relationship with all its neighbours. But there was also the caveat and swipe at China’s Belt and Road Initiative dealings: just ensure that Nepal protects its own sovereignty and that projects are mutually beneficial. The visit of the under-secretary to India and Sri Lanka immediately following Nepal illustrates that strategic concerns with respect to China’s influence in the South Asian region were high on the agenda. In Sri Lanka, the government is struggling with a balance of payments crisis in which China has played an important role. The government in Sri Lanka is currently seeking support from the International Monetary Fund and will need American support. In India, both Washington and New Delhi are hoping to shore up commitments touching upon defence cooperation and activities within the Quadrilateral Security Dialogue. For the United States, however, India has not been as reliable a South Asian partner as it could be when it comes to countering China, particularly in its dealings with Nepal. Traditionally, India has been Nepal’s largest trading partner and the main conduit for economic and military assistance. The Indian Aid Mission in Nepal was set up in 1954 for coordinating development in the areas of connectivity, health, education, and within government. The relationship soured considerably following an economic blockade imposed by India in 2015, which disrupted Nepal’s supplies and other essential goods. Recently, New Delhi has been both directly and indirectly more forthright in its interference in Nepal’s internal affairs, including in its influence in the government formation process. One of the key elements of Nepal’s geopolitical strategy has been to maintain good relations with both India and China, while trying to avoid being drawn too closely into the orbit of either country. This has often involved playing a delicate balancing act between the two powers and seeking to maintain a degree of independence and neutrality in regional affairs. As a landlocked country, geopolitical strategy in Nepal has traditionally been shaped by its mountainous location, and its relative weakness compared to its larger neighbours. Nepal has also sought to strengthen its ties with other countries in the region through regional organisations, such as the South Asian Association for Regional Cooperation and the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation. In recent years, China’s influence in Nepal has grown alongside the economic and political relationship. Large-scale infrastructure projects, such as highways, airports, and hydropower plants, as well as cultural and educational exchanges have been key to this influence. One of the most significant Chinese-backed projects in Nepal is the construction of the Kerung-Kathmandu railway, which is intended to connect Nepal with China’s Tibetan plateau. Other major projects include the construction of the west Seti Hydropower Plant and the upgrading of the Tribhuvan International Airport in Kathmandu. These projects were no doubt central to Nuland’s visit. Nepal has been keen to bandwagon on China’s Belt and Road Initiative for boosting economic growth and development. For the United States, and especially the current and former administrations, the belief is that such projects are linked to greater ambitions for global economic dominance. It is worth noting that two months earlier, Chinese officials had visited Nepal to explore further railway projects. In September last year, USAID and the Ministry of Industry and Commerce of Nepal jointly launched the Trade and Commerce project. The goal of this project is to increase inclusive and sustained free and fair trade as well as boost commercial competitiveness in the Indo-Pacific region. The project falls under the broader framework of the Indo-Pacific Business Forum (IPBF). According to the US Department of State, on 12 January more than 140 in-person and 1,000 virtual government leaders encompassing the Indo-Pacific and others from around the world participated in the latest meeting. Nepal is not yet a member and, for the time being, enjoys an advisor role within the program. In May last year, Nepal and the US signed a grant agreement for US$659 million to support Nepal’s goal to become a middle-income country. It is noteworthy that the US, along with 13 countries in South Asia, launched the IPBF the same month to advance resilience, sustainability, inclusiveness, economic growth, and competitiveness in the region. Those countries that are not part of the IPBF, namely Nepal and Bhutan, continue to regard it as a military alliance and opinions are divided as to whether they should join or stay out. Nuland’s visit has likely added pressure to both governments to chart a clearer path in the contest between the US and China. Sapana Phuyal is a graduate student in International Relations at La Trobe University. Twitter: @SapanaPhuyal This article is published under a Creative Commons Licence and may be republished with attribution.

Article was first published on 10 February 2023.


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